CMBS Issuance Marks Largest Ever New-Year Kickoff

Wall Street dealers issued $8.8 billion of commercial mortgage-backed securities in January, marking the biggest ever start to a year for the market closely tied to the health of U.S. real estate.

The Thursday pricing of the final portion of a $3.6 billion refinancing of debt on the Extended Stay America hotel chain by J.P. Morgan Chase & Co. and Deutsche Bank put the month’s tally over the $8.2 billion of January 2005, when issuance saw its biggest year-over-year increase.

Investment banks and other firms have sharply increased lending over the past half year as investors have piled into the bonds for their over benchmark interest rates, such as U.S. Treasurys. That demand, and low rates, have helped increase available credit, which has resulted in higher property values and fewer defaults.

The delinquency rate on CMBS loans dropped 0.14 percentage point to 9.57%, the lowest in 11 months, Trepp, CMBS data firm, said Thursday. The improvement came as distressed loans were worked out and as new CMBS are added to the total, it said.

“The record-setting issuance for this month demonstrates the robust demand for CMBS and the continued recovery of the broader commercial real estate market,” said Harris Trifon, head of CMBS and asset-backed research at Deutsche Bank.

“The issuance pipeline continues to track above our most optimistic expectation,” he added. He predicted $60 billion in issuance this year, up from about $48 billion in 2012.

To be sure, investors and rating firms say loan underwriting has been deteriorating as lenders seek to fill their pipelines. The loans so far don’t match the excesses of the boom years but standards such as loan-to-value requirements are looser, the rating firms have said.